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Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Carlisle Companies Incorporated (the Company or Carlisle) in accordance and consistent with the accounting policies stated in the Companys financial statements in Exhibit 99.1 in this Current Report on Form 8-K and should be read in conjunction with the consolidated financial statements in Exhibit 99.1 in this Current Report on Form 8-K. The unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and, of necessity, include some amounts that are based upon management estimates and judgments. Actual results could differ from current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of all majority-owned subsidiaries. Intercompany transactions and balances are eliminated in consolidation. |
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Note 2 Reclassifications and Revisions
Certain reclassifications and revisions have been made in this Current Report on Form 8-K to the previously filed information included in the Companys Quarterly Report on Form 10-Q filed on August 27, 2010 as follows:
· The Consolidated Statements of Earnings has been retrospectively adjusted to reflect the results of operations of the specialty trailer business as discontinued for all periods presented. The assets and associated liabilities of the specialty trailer business have been classified as held for sale in the Consolidated Balance Sheets for all periods presented. See Note 19 for additional information regarding discontinued operations and assets held for sale.
· The segment disclosures in Note 15 have been revised to reflect the elimination of the Specialty Products segment resulting from the sale of the refrigerated truck bodies and specialty trailer businesses.
· The Unaudited Consolidated Statement of Cash flows for the first six months of 2009 has been revised to reflect the classification as an investing cash inflow of $30 million of proceeds received from the Companys insurance carriers related to destroyed property, plant and equipment as a result of the fire that occurred at the Companys tire and wheel plant in Bowdon, GA that was previously classified in net cash provided by operating activities. The amounts previously presented for cash provided by operating activities for first six months of 2009 was $269.0 million and cash used in investing cash flows was $17.0 million. The revised amount for net cash provided by operating activities is $239.0 million and the revised amount for cash provided by investing activities is $13.0 million. See Note 2 for further discussion of the Bowdon, GA plant fire. |
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Note 3 - New Accounting Pronouncements
New accounting standards adopted
There were no accounting standards adopted in the first six months of 2010 and 2009.
New accounting standards issued but not yet adopted
There are currently no accounting standards that have been issued, but not yet adopted, that are expected to have a significant impact on the Companys financial position, results of operations and cash flows upon adoption. |
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Note 4 - Fire Gain
On November 16, 2008, a fire occurred at the tire and wheel plant in Bowdon, GA, and as a result the building and the majority of the machinery, equipment, records and other assets were destroyed. In order to service customers, partial operations were initiated at a facility in Heflin, AL, and some production was transferred to other tire and wheel plants or outsourced to third parties.
In the fourth quarter of 2008, while the Company was negotiating its claim, a pretax loss was recorded representing the deductible of $0.1 million. The net result of fire-related transactions in the first quarter of 2009 was a $2.5 million pretax gain, which included a $2.6 million pretax gain on the settlement of the inventory claim which was the difference between $8.9 million, representing the loss on inventory recorded in the fourth quarter of 2008 for which a receivable was recorded at December 31, 2008, and $11.5 million of cash proceeds received from the insurance carriers to settle the inventory claim in the first quarter of 2009. Total payments of $13.5 million were received from the insurance carriers in the first quarter of 2009.
The net result of fire-related transactions in the second quarter of 2009 was a $24.5 million pretax gain on the settlement of all other claims and that amount was reported as Gain related to fire settlement. This gain was the difference between the $41.0 million of cash proceeds received from the insurance carriers in settlement of all outstanding claims and the $11.2 million insurance claims receivable balance at March 31, 2009 included in Prepaid expenses and other current assets for a portion of the expected insurance reimbursements plus $5.3 million, representing fire-related cost in the second quarter of 2009.
From January 1, 2009 through June 30, 2009 cash proceeds of $54.5 million were received from the insurance carriers. Losses and cost incurred from November 16, 2008 through June 30, 2009 of $27.6 million included $8.9 million of inventory; $5.7 million of building, machinery, equipment and other assets; and $13.0 million of fire-related cost. The $26.9 million pretax gain from November 16, 2008 through June 30, 2009 was the difference between cash proceeds of $54.5 million and the losses of $27.6 million. On a quarterly basis, a loss of $0.1 million was recorded in the fourth quarter of 2008, a gain of $2.5 million was recorded in the first quarter of 2009, and a gain of $24.5 million was recorded in the second quarter of 2009.
A minimal amount of fire-related scrap was sold in the third quarter of 2009. Since all insurance claims due to this fire were settled with the carriers no additional insurance proceeds are anticipated. |
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Note 5 - Borrowings
At June 30, 2010, the fair value of the Companys par value $150 million, 6.125% senior notes due 2016, using Level 2 inputs, is approximately $169 million. The fair value of the Companys senior notes is based on current market interest rates and the Companys estimated credit spread available for financings with similar terms and maturities. |
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Note 7 Stock-Based Compensation
During the three and six month period ended June 30, 2010 and 2009, the Company expensed stock-based compensation awards under the 2004 Executive Incentive Program and the 2005 Nonemployee Director Equity Plan. A detailed description of the awards under these plans is included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.
Stock-Based Compensation Expense
Compensation expense recorded for all of the Companys share-based compensation plans during the second quarter and first six months of 2010 and 2009 was as follows:
Grants
In the first quarter of 2010 the Company awarded 590,020 stock options, 101,785 restricted stock awards and 101,785 performance share awards with an aggregate fair value of approximately $14.3 million to be expensed over the requisite service period for each award which generally equals the stated vesting period.
The grant date fair value of the 2010 stock options with a three-year graded vesting condition was estimated under the Black-Scholes-Merton formula using the following weighted-average assumptions:
The Company initially granted performance shares in the first quarter of 2010. The performance shares vest based on the employee rendering three years of service to the Company, and the attainment of a market condition over the performance period, which is based on the Companys relative total shareholder return versus the S&P Midcap 400 Index® over a pre-determined time period as determined by the Compensation Committee of the Board of Directors. The grant date fair value of the 2010 performance shares was estimated using a Monte-Carlo simulation approach. Such approach entails the use of assumptions regarding the future performance of the Companys stock and those of the peer group of companies. Those assumptions include expected volatility, risk-free interest rates, correlation coefficients and dividend reinvestment. Dividends accrue on the performance shares during the performance period and are to be paid in cash based upon the number of awards ultimately earned.
There were no additional grants of stock-based compensation awarded in the second quarter of 2010. |
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Note 8 Acquisitions
On October 1, 2009, the Company acquired the remaining 51% interest in Japan Power Brake, Inc. (JPB), a leading provider of high performance braking solutions for off-highway equipment, primarily in the mining and construction industries in Japan, for a purchase price of approximately $4.2 million. JPB is located in Atsugi, Japan and is under the management direction of the Engineered Transportation Solutions segment. The purchase price included an allocation of $0.9 million to other intangible assets reflecting a non-compete agreement with a useful life of 10 years. The remaining purchase price was allocated to current assets; property, plant and equipment; and current liabilities.
On October 1, 2009, the Company acquired 100% of the equity of Electronic Cable Specialists (ECS), a leading provider of electrical and structural products and services for the aviation, medical and industrial markets, for a purchase price of approximately $42.4 million. The acquisition of ECS expands Carlisles product and system reach into additional avionics applications and strengthens Carlisles engineering and design capabilities. The acquisition will allow for the reduction of expenses through consolidation of certain sales, general and administrative functions and through in-house production of certain components which were previously purchased by ECS from third parties. Carlisle also expects to achieve increased sales from its existing customer base with the addition of the engineering and design capabilities of ECS. ECS is located in Franklin, WI and is under the management direction of the Interconnect Technologies segment. The purchase price allocation resulted in current assets of $15.1 million; property, plant and equipment of $1.9 million; goodwill of $13.5 million; identified intangible assets of $14.5 million; and non-interest bearing current liabilities of $2.6 million. Of the $14.5 million of acquired intangible assets, $2.6 million was assigned to trade names that are not subject to amortization, $4.5 million was assigned to customer relationships with a determinable useful life of 17 years, and the remaining $7.4 million was assigned to other intangible assets with a weighted average useful life of 14.7 years. The goodwill from this acquisition is deductible for tax purposes.
On September 18, 2009, the Company acquired the assets of Jerrik, Inc. (Jerrik), a recognized leader in the design and manufacture of highly engineered military and aerospace filtered connectors, for approximately $33 million. The acquisition expands the Companys range of products serving the defense and aerospace markets. The acquisition will allow for reduction of expenses through consolidation of certain sales, general and administrative functions and through in-house production of certain components, which were previously purchased by Jerrik from third parties. Jerrik is located in Tempe, AZ and is under the management direction of the Interconnect Technologies segment. The purchase price allocation resulted in current assets of $7.9 million; property, plant and equipment of $1.8 million; goodwill of $13.7 million; identified intangible assets of $10.8 million; and current liabilities of $1.2 million. Of the $10.8 million of acquired intangible assets, $0.2 million was assigned to trade names with determinable useful life of 2 years, $7.1 million was assigned to customer relationships with a determinable useful life of 18 years, and the remaining $3.5 million was assigned to other intangible assets with a weighted average useful life of 18.1 years. The goodwill from this acquisition is deductible for tax purposes.
The revenues and earnings for the first quarter of 2009 of the above acquisitions when combined with those of the Company were not materially different than the reported results of each respective prior period. |
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Note 10 Inventories
The Company is a diversified manufacturer comprised of multiple domestic and foreign operations manufacturing different products. The First-in, First-out (FIFO) method is used to value inventories.
The components of inventories as of June 30, 2010 and December 31, 2009 were as follows:
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Note 11 Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill as of June 30, 2010 were as follows:
*All periods presented have been adjusted to reflect the refrigerated truck bodies and specialty trailer businesses as discontinued operations and the elimination of the Specialty Products segment.
The Companys other intangible assets at June 30, 2010 were as follows:
Estimated amortization expense for the remainder of 2010 and the next four years is as follows: $6.1 million remaining in 2010, $11.6 million in 2011, $10.4 million in 2012, $9.4 million in 2013 and $9.1 million in 2014.
The net book value of the Companys Other intangible assets by reportable segment are as follows:
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Note 12 Retirement Plans and Other Post-retirement Benefits
Components of net periodic benefit cost were as follows:
The Company made contributions of $2.0 million to the pension plans during the quarter ended June 30, 2010. The Company expects to contribute approximately $4.0 million to the pension plans in 2010.
The Company maintains defined contribution plans to which it has contributed $4.9 million during the six months ended June 30, 2010. Full year contributions are expected to approximate $9.8 million. |
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Note 14 Commitments and Contingencies
Extended Product Warranties
The Company offers various warranty programs on its installed roofing systems, braking products, aerospace cables and assemblies, truck trailers and foodservice equipment. The change in the Companys aggregate product warranty liabilities were as follows:
The amount of extended product warranty revenues recognized was $4.0 million and $3.9 million for the second quarter of 2010 and 2009, respectively and $7.8 million and $7.7 million for the first six months of 2010 and 2009, respectively.
ETS U.S. Customs Matter
The Company received written correspondence from the U. S. Immigration and Customs Enforcement Office of Investigations (ICE) dated March 11, 2010 indicating that it initiated an investigation relating to the classification of certain rubber tires imported by its tire and wheel operation within the Engineered Transportation Solutions segment since 2004. The Company responded to ICEs inquiry and, on August 19, 2010, ICE informed the Company that it had terminated its investigation. The Company continues to work separately with U. S. Customs and Border Protection to properly classify its products.
At this time, the Company cannot predict or determine the amount of additional duties and/or civil fines or penalties, if any, owed as a result of this classification effort. In the opinion of management, the ultimate outcome of such actions will not have a material adverse effect on the consolidated financial position of the Company. |
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Note 16 - Income Taxes
The effective income tax rate on continuing operations for the six months ended June 30, 2010 was 37.5% compared to an effective income tax rate of 31.5% for the six months ended June 30, 2009. The variation in the effective income tax rate during the six months is attributable to an increase in the tax rate imposed on offshore earnings and sunset of favorable US tax provisions. |
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Note 19 - Exit and Disposal Activities
The following table represents the effect of exit and disposal activities related to continuing operations on the Companys Consolidated Statements of Earnings for the three and six months ended June 30, for 2010 and 2009, respectively:
Exit and disposal activities by type of charge were as follows:
Exit and disposal accrual activities for the six months ended June 30, 2010 were as follows:
Exit and disposal activities by segment were as follows:
Engineered Transportation Solutions During the first six months of 2010, the Company had two consolidation projects underway within the Engineered Transportation Solutions segment in its continuing efforts to reduce costs and streamline its operations. Descriptions of these projects are set forth below:
· In the third quarter of 2009, the Company announced plans to consolidate its tire manufacturing operations in Heflin, AL, Carlisle, PA, and portions of Buji, China into a new facility in Jackson, TN purchased in the third quarter of 2009. The consolidation of the tire manufacturing operations into Jackson, TN is expected to be substantially completed by the end of 2010.
· In the fourth quarter of 2009, the Company announced plans to close its friction product manufacturing facility in Logansport, IN and to consolidate operations into its locations in Hangzhou, China and Bloomington, IN. This consolidation is expected to be completed by the end of 2010.
The Company expects the total cost of these consolidation projects will be approximately $26.9 million, of which $14.4 million has been incurred through June 30, 2010, and $12.5 million is expected to be incurred in the remainder of 2010. The Company recorded $5.9 million of expense during the first six months of 2010 primarily consisting of employee termination costs and other relocation costs. Amounts expected to be incurred in the remainder of 2010 primarily relate to employee termination and other costs associated with the relocation of employees and equipment.
Included in Accrued expenses at June 30, 2010 was $5.9 million related to unpaid severance, moving and relocation and other costs for the above projects as well as other consolidation projects completed in 2009.
During the three and six months ended June 30, 2009, the Company recorded $4.7 million and $8.4 million in exit and disposal costs, respectively, including $2.8 million in fixed asset impairment charges during the second quarter of 2009 related to the Jackson consolidation and a total of $5.7 million in fixed asset impairment charges for plant restructurings in the six months ended June 30, 2009.
Interconnect Technologies In the fourth quarter of 2009, in efforts to reduce costs and streamline operations, the Company announced that it would consolidate its Vancouver, WA facility into its facilities in Long Beach, CA, Tukwila, WA, and Dongguan, China and close its Vancouver facility. This consolidation is expected to be completed by the third quarter of 2010.
The Company expects the total cost of this consolidation project will be approximately $4.4 million, of which $4.1 million has been incurred through June 30, 2010, and $0.3 million is expected to be incurred in the remainder of 2010. The Company recorded $1.0 million of expense during the first six months of 2010 primarily consisting of employee termination costs and other relocation costs. Amounts expected to be incurred in the remainder of 2010 relate primarily to employee termination, lease termination and other costs associated with the relocation of employees and equipment.
As of June 30, 2010, a $0.4 million liability exists for unpaid exit and disposal costs related to the consolidation of the Vancouver, WA facility. |
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Note 20 - Subsequent Events
On December 1, 2010, the Company completed the acquisition of Hawk Corporation for approximately $414 million. |
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